Mad Man

Why some Gen Yers may need to be saved from themselves when it comes to real estate

March 15, 2012

by Max Fawcett

By Max Fawcett

Journalism sometimes involves risks for reporters, who must put themselves in the line of fire – sometimes figuratively, and sometimes, in the case of Sunday Times reporter Marie Colvin, literally – in order to get their story. Ultimately, it’s up to them to decide whether it’s worth it, but their editors also have a professional duty to protect them wherever possible and to say, in certain situations, that the risk simply isn’t worth the reward. Right now, CBC Reporter and Tyee freelancer Luke Brocki’s editors are failing to perform that duty. After all, they appear to be letting him talk himself into a very dangerous situation.

The CBC and the Tyee have commissioned a series of stories by Brocki on his apparent desire to buy real-estate in Vancouver and his exploration of whether that’s a reasonable objective or not. The simple answer is no, of course it isn’t, don’t be ridiculous. But rather than quashing his unrealistic and potentially self-destructive dream, they instead allow him – enable him, even – to indulge in it.

Why is it dangerous? Brocki says that as a freelance journalist he earns, on average, around $40,000 a year, and it’s an income that ebbs and flows as his invoices get paid. According to RBC’s mortgage calculator (assuming a five-year rate of 5.24 per cent) even if Brocki can manage a $50,000 down payment he can still only afford to cover a mortgage of $165,172. That might get him into a lovely upscale outhouse on the downtown east-side, or perhaps a one bedroom shack in the suburbs, but that’s about it – in Vancouver, the median cost of a condominium is well over $400,000, while the cost of a detached bungalow is rapidly approaching $1 million.

Brocki says that his desire for terra firma is informed in part by his admittedly elementary understanding of economics, his immigrant background and his friends (who don’t really sound like friends, to be honest) constantly gloating about how much money they’re making on their homes. The first two reasons are excusable, I suppose – although Brocki, who says that the only alternative to owning property is to “leave your savings at two per cent interest in so-called high-interest savings accounts,” might want to learn a little more on investing – but the last one bears a bit more examination. It’s a shame that he appears to be so credulous, because the truth of the matter is that his “friends” are either lying about how great they’re doing or don’t realize the trap that they’ve sprung for themselves.

In a rising market, home ownership can feel liberating – it makes you richer, gives you status and affords you the opportunity (one that new home owners never miss) to look down your nose at renters. But in a falling market, a home is a trap, and the more the market falls, the tighter the vice gets. Suddenly, all that equity that you’d been drawing on to finance vacations and consumer purchases has disappeared. And when you try to sell your place, you discover that you might actually owe the bank after the transaction has closed – and that’s before the realtor takes his or her piece. Renting might be a hassle sometimes, but as thousands of young Americans have discovered the hard way, real-estate can be a living nightmare.

Of course, the mantra in Vancouver is that “it’s different here.” Real-estate, it seems, will continue to rise in perpetuity, whether that’s because of foreign investment or low-interest rates or Vancouver’s mild winters or whatever else the local real-estate board happens to be saying at the moment. But no asset goes up forever, and Vancouver’s real-estate market has experienced sudden, shocking corrections in the not-so-distant past. If it happens again, people like Brocki – especially ones who bought late – are going to get massacred.

Douglas Coupland has described real-estate as Vancouver’s favourite sport, but it’s really more of a sickness. It infects people, inhibiting their ability to make rational decisions and ultimately leaving weakened and enfeebled. Take Brocki’s foray into the suburbs, a place he readily admits he doesn’t want to live but one that he’s exploring because he might actually be able to afford it (he can’t, but he’ll be closer to affordability, at which point a particularly unscrupulous real-estate broker could slide in, fudge the numbers and cut him a cheque, collecting a fee and leaving him to discover just what a mess he’s made for himself). He likes his neighbourhood, enjoys his apartment and lives where he wants – so why would he ever consider moving to a shack in Abbotsford? Because, in some twisted way, he’s come to believe that it’s the only option he has left.

But the good news is that there’s a cure, and it’s one Brocki is already intimately familiar with: renting. Say it with me, Luke: It’s okay to rent. Europeans have been doing it for centuries now. It offers you freedom of movement (something that ought to be important to a freelance journalist), to pick up and change directions, without being weighted down by an asset you can’t move without it costing you tens of thousands of dollars. When the roof leaks or the fridge breaks, it’s not you that has to cover the cost of fixing the problem. And you can take the money you’re saving on condo fees, property taxes and mortgage payments and put it into your savings account – or, if you’re feeling brave, into the markets.

Let’s be realistic here, Luke. Renting might not have the glamour and glory of ownership, and you won’t be able to crow to your friends about how much imaginary money you’re making on your home. But if you’re going to work as a freelance journalist in Vancouver and you’re not willing to install a grow operation in your basement, it’s really your only option.